The global chip shortage has impacted everything from the production of game consoles and smartphones to computers and home appliances. One of the industries affected the most is tech, which saw an uptick in demand for PCs and laptops when Covid pivoted employees and students to work remotely. Even Dell Technologies, which has a global supply chain and is often held up as a bellwether for supply chain management, isn’t immune to the effects of the shortage.
Dell Technologies CFO, Tom Sweet, says the rapid reopening of global economies due to the coronavirus pandemic has impacted many industries besides tech, including lumber and automotive. The shortage has resulted in a longer lead time for certain Dell products, according to Sweet. “It’s a day to day juggle, but we’re managing our way through it, working with our customers. It’s a challenging environment,” he says.
The tech sector has been turned upside down due to the dearth of semiconductors, which has led to empty store shelves, created production bottlenecks and frustrated many consumers. It’s also affected cash flow as it’s difficult to plan how much to buy when prices and availability are constantly changing. The shortage of key components has resulted in backlogs in delays and shipping across companies, Sweet adds. “It’s a widespread problem that companies are working their way through,” he says.
In the face of this worldwide shortage, Dell has been powering through. Part of Dell’s strategy has been working closely with its supply base and giving them early indications of Dell’s needs. The company is also working with its selling organizations and customers to manage the availability it has and the configurations Dell can supply, Sweet says. “The global economy is rebounding and the IT market is growing,” he says. “We are bullish on our ability to execute our strategy, grow and achieve our vision of becoming the essential tech company of the data era.”
While Covid has wreaked havoc, it’s also reinforced the vitalness of technology. “The pandemic overall accentuated the key role of technology and helping people do their jobs, learn from home, work from home and stay connected,” Sweet says. “In many ways it accentuated or accelerated the importance of technology and the digital platforms across the various ecosystems.” In addition to pivoting its workforce to be remote, Sweet says the software company took action around cost frameworks to protect the liquidity of Dell. There were also growth opportunities that Dell hadn’t planned on, particularly around the growth of its PC business. During the onset of the pandemic, people stockpiled computers and tech equipment for telework and remote learning.
Dell’s financials reflect this demand for tech during Covid-19: First quarter revenues were $24.5 million, which is 12% up. The Texas-based company’s strong quarter revealed $1.4 billion in operating income, an increase of 96% year-over-year, and a net income of $938 million. Another source of income was its cloud-computing infrastructure giant VMware, which in the first quarter generated revenue of about $3 billion, an uptick of 9%. Dell acquired VMware in 2016 as the result of a $67 billion merger with IT services company EMC, which saddled the company with debt.
In April, Dell announced that it would spin-off its 81% stake in VMware, resulting in two standalone public companies. VMware will distribute a cash dividend of $11.5 to $12 billion to VMware shareholders, including Dell Technologies. Dell would receive approximately $9.3 to $9.7 billion and will use net proceeds to pay down debt, which will position the company for investment grade ratings.
“VMware has got a very large ecosystem of other partners besides Dell Technologies and we needed to give them a bit more freedom around their partner ecosystem base. Dell Technologies also wanted to have a bit more freedom around our partner ecosystem,” Sweet says. “It’s also a great opportunity to drive and provide shareholder value through this.” Post-spinoff, Sweet notes that Dell will still have a close relationship with VMware.
The pandemic and chip shortage, coupled with the spinoff of VMware, has made for a big year for Dell so far. Experts predict that the market will see growth. “As we look forward, technology spending is forecasted to be competitive to improve over the next number of years,” Sweet says. According to the International Data Corporation, the worldwide edge computing market will reach $250.6 billion in 2024. Gartner projects worldwide IT spending to total $4.1 trillion in 2021, which is an increase of 8.4% from 2020, and 2022 is expected to see an uptick of 5.5% at about $4.3 trillion.
Dell experienced a strong quarter, but Sweet says it also felt pressure on parts of its business. While PC sales were strong, Sweet says customers pivoted their budgets, which for example, resulted in a softer infrastructure business. “Customers made different buying decisions out of necessity,” he says. “Overall, the company navigated reasonably well.”
“We’re technology optimists. We believe that technology can empower human progress,” says Sweet. “We think about ourselves as an essential infrastructure company that’s going to help our customers realize their business outcomes.”
Read more: Deal Of The Century: How Michael Dell Turned His Declining PC Business Into A $40 Billion Windfall
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August 09, 2021 at 05:00PM
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Dell Technologies CFO Tom Sweet On The Chip Shortage, VMware Spin-Off And The Post-Pandemic IT Market - Forbes
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